§ 19. Mr. Howard Flight (Arundel and South Downs)If he will make a statement on the compulsory purchase of annuities. [461]
§ The Secretary of State for Work and Pensions (Mr. Alistair Darling)The Government have made it clear that it is important that pension funds that are built up with the support of tax relief are used for their intended purpose. The Government welcome the wider diversity and choice now available in the annuity market and remain open to workable and affordable alternatives.
§ Mr. FlightWill the Government respond to the comments made by Dr. Oonagh McDonald to the effect that it is not the case that the recommendations of the McDonald report would involve a loss of tax revenue, as the Government have alleged? If there is not a fiscal case for opposing the end of the obligation to buy annuities, what are the Government's objections?
§ Mr. DarlingAs the hon. Gentleman knows, Dr. McDonald recommended a retirement plan that would provide an income over a 20-year period. The question is what happens after that. We want to avoid a situation in which people do not have a fund with which to provide their pension during their retirement, which can happen if there is early draw-down or a 20-year retirement plan, as proposed by Dr. McDonald. We also want to avoid doing anything that would result in a further reduction in annuity rates, which would, of course, be detrimental for all pensioners. However, we remain open to workable proposals that are seen to improve matters. Although we will respond to Dr. McDonald's proposals, I am not sure that we are quite ready to do so.
§ Dr. Vincent Cable (Twickenham)Does the Secretary of State agree that a great many pensioners have been caused much distress by the collapse in annuity values over the past few years? Does he also agree that the Government's objectives could be perfectly well achieved if the element of compulsion were confined to the level of the income guarantee?
§ Mr. DarlingThe hon. Gentleman is right; annuity rates have come down. There are two principal reasons for that: first, inflation is low, which benefits many pensioner incomes, and, secondly, increased life expectancy, which is a major determinant of the annuity rate. Those are good things, but annuity rates have fallen. One measure will help. He will be aware that in, I think, 1999, a study into pension funds showed that more than one third of the fund was eaten up by charges and fees. The stakeholder pension that we introduced caps charges at 1 per cent., the effect of which has been felt across the industry, and will result in more of the pension fund being available for retirement. As for compulsion, I believe that the hon. Gentleman knows that that already exists in the pension system.